Solar stocks have defied recent market volatility and have been trading within one of the strongest uptrends in the financial markets throughout 2019. However, recent price action shown on the charts discussed in the paragraphs below suggests that the trend could be in the early stages of a reversal.

Invesco Solar ETF (TAN)

For retail investors, analyzing niche exchange-traded funds (ETFs) is probably one of the best ways for developing a sense for where a particular market sector is headed. In the case of solar companies, the most popular choice is the Invesco Solar ETF (TAN). Fundamentally, the ETF comprises 22 holdings from across the globe.

Taking a look at the chart, you can see that the fund has traded within a defined uptrend for all of 2019. For followers of technical analysis, it is interesting to note how the trendline has propped up the price on each attempted pullback. Monday's selling pressing is now of particular interest to trend traders because it has sent the price below the support on higher-than-average volume (shown by the blue circle). Given the recent breakdown, active traders will now likely be expecting the bears to continue to dominate the price action and be watching for one or two more closes below the trendline to act as confirmation of a major trend reversal.

Chart showing the share price performance of the Invesco Solar ETF (TAN)

First Solar, Inc. (FSLR)

One of the top holdings of the TAN ETF that will likely be on the watchlists of active traders over the coming months is First Solar, Inc. (FSLR). As you can see from the chart below, the stock has trended higher for most of 2019, but it has recently fallen below the support of a dotted trendline. The breakdown has led to a brief period of consolidation that many are keeping an eye on.

Specifically, traders will want to see whether the bulls will step in again like they've done in the past. Taking the chart of TAN discussed above as a signal, it seems as though the bulls are losing conviction in solar companies in general, which could be enough of a reason to stay on the sidelines until there are clear signals pointing to a move higher.

Chart showing the share price performance of First Solar, Inc. (FSLR)

Enphase Energy, Inc. (ENPH)

One of the best-performing companies in the solar sector over the past year has been Enphase Energy, Inc. (ENPH). As you can see, the uptrend is quite strong, and the momentum is currently in favor of the bulls. However, the significant retracement toward the support of the dotted trendlines is going to prove very influential as to whether the long-term uptrend will continue.

From the perspective of a trend trader, a close below the dotted trendline will signal a trend reversal and would likely be the catalyst for a flood of stop-loss orders getting triggered and adding to the downward pressure. Price action this week will likely set the tone for the remainder of 2019.

Chart showing the share price performance of Enphase Energy, Inc. (ENPH)

The Bottom Line

Solar companies have been trading within one of the strongest trends so far in 2019. As shown on the chart of TAN, cracks seem to be starting to show in the uptrend, and some trend traders are now watching for a reversal. 

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.